1. Field of the Invention
This invention relates to accounting methods and more particularly to an Internet-based billkeeping and litigation management system, allowing third parties to monitor the progress and expense of litigation and/or possibly other legal matters.
2. Description of the Related Art
The imposition of insurance company billing and litigation guidelines has been a problem for defense counsel over the past ten years. While such guidelines may be unpleasant, ethical questions automatically surface whenever an attorney is instructed by someone other than a true client what should or should not be included in the preparation of a client""s defense or what can or cannot be billed. The question arises as to whether or not defense attorneys are principally acting in an unethical manner or committing malpractice if, through guidelines, they allow an insurance carrier to control litigation. Variables flowing from that question to any given case situation make the answer somewhat elusive. Any time they conform to guidelines instead of professional judgment, attorneys arguably are acting contrary to canons, committing malpractice or behaving unethically. In a more practical business sense, it is not so easy for attorneys or judges to know where lines should be drawn. There are many cases that set out to interpret the bottom line rights and obligations of the parties in a tripartite relationship. As in many heated ethical or legal issues, the true answer continues to be obscure in the face of absent absolutes.
A pure and simple axiom is unlikely to be found any time soon. It is clear that neither the lawyers nor their insurance counterparts intend to soften their positions on guideline issues. Battle lines have been drawn over the past twenty years by the insurance industry and their outside defense counsel regarding such guidelines. Over time, disputes between the two sides have become less subtle and more recently have accelerated with an intensity not likely to soon diminish. What once flourished as a healthy and tightly bonded business relationship has become an unfortunate and relentless scrimmage which allows and fosters mistrust, uncertainty and lack of confidence to influence, maybe even dominate, interactive behavior.
Now the insurance industry, as a whole, has resorted to harsher tactics. They have made billing for legal services a focal point rather than the residual it had been in the past. Insurance defense firms are routinely being audited by insurance companies and are putting up with (some would say victimized) by fee adjustments by what bas become a dreaded bill review process. As a result, a whole new ethical consideration now looms. Notwithstanding the isolated ethical question of having a third party audit a law firm""s, bills, billing guidelines (which themselves are often argued to have unethical aspects in a pure sense) have recently and more regularly served as the very measurement upon which the audits and bill reviews are predicated, instead of the quality and/or shell with which the legal services are rendered. The more restrictive and complete the guidelines, the more susceptible a bill is to adjustment. Cost becomes the overriding consideration for the insurance carrier payor, rather than service to the insured.
Disagreements continue to mount. Although they are closely intertwined, guidelines and audits with all their separate but related ethical problems, really stem from the erosion of relationshipsxe2x80x94something that could be easily repaired if each side would sincerely want to make things better. While these problems hit directly on ethical matters, their solutions may be found through a less formal, indirect link. To understand the quandary collectively facing the insurance and insurance defense industries today, and maybe even reach some solutions, it is helpful to separately analyze the roots and breakdown the makeup of current problems. Main components of such an analysis include:
1. history of relationships, attitudes and guidelines;
2. the advent, impact and influence of hourly billing;
3. a more practical interpretation of the tripartite relationship;
4. the ethical aspects and presuppositions of outside counsel guidelines; and
5. The development of audits and their impact.
The current situation and its difficult nature arose over time from many sources. It would take many fingers to point blame for the mess in which outside defense firms and one of their primary sources of businessxe2x80x94insurance companiesxe2x80x94are finding themselves. This situation has resulted from an abstract history of development that includes exaggerated litigiousness, increasing case complexity, changing laws, liberalism, consumerism, mismanagement, and countless other factors. To lay responsibility, or blame, either on outside counsel or on the insurance companies would be unfair and would only serve to sabotage restorative measures which are sorely needed if improvement in working relationships can be achieved. Still, both have clearly made mistakes which contributed to the frictionxe2x80x94the most serious being a general failure to truly communicate by understanding one another""s composite problems.
The evolution of trouble has intensified annually as overall litigation defense costs and their ratio to indemnity dollars has increased. Even though some transfer occurs through increased premiums, the heaviest and most direct impact of these rising costs falls squarely upon the insurance industry. That legal expenses are a problem is irrefutable. While to a great extent holding outside counsel responsible for causing the problem, insurance companies have largely accepted it as their own for solving. This is at least the perception created when looking at the seemingly infinite number of is guidelines and audit processes now being forced upon defense attorneys. The emergence of guidelines, which are steadily becoming more cumbersome, shows off the most noticeable common characteristic of the insurance industryxe2x80x94solving problems by regulation. It is the nature of any insurance company to believe that management of processes creates all successes. This is precisely why defense guidelines most often are characteristically procedural. The propriety of these xe2x80x9cproceduresxe2x80x9d may be challenged every time their implementation potentially clashes, or conflicts, with inherent responsibilities of either the attorney or the claims professional.
Insurance carriers have vigorously asserted themselves in trying to solve their legal expense problems by micro-supervising defense attorneys to spend less and accomplish more toward reasonable claims resolutions. Is this obsession with controlling the process deserved by defense attorneys? Maybe so. In fact, initially, to a large degree, they were the cause of current ill feelings. While law firms flourished in the nineteen-eighties, they failed to understand the composite makeup, needs and development of their primary business source through some very tough times. During the early eighties, too many insurance defense firms ignored what had been happening to their customer base in the preceding four or five years. Through the economic stresses of insurance companies, when the seeds of current attitudes were planted, law firms commonly realized record profits; ignored their responsibilities for developing future business relationships and neglected to offer their own creative thoughts for legal cost solutions.
As an aftermath of severe market cycles and having failed miserably at cash flow underwriting attempts, the insurance industry found itself in big financial trouble by 1980. The portrait by mid-decade was ugly at best with Allocated Loss Adjustment Expense (ALAE), which includes legal expense, and high pure loss ratios combining to break some insurance companies and severely cripple most of the rest. By then, there were more attorneys than ever and lawsuits continued to rise. So did company insolvencies. Seeing no affirmative relief from the legal industry in the face of burdensome expenses, the insurance industry saw legal expenses as a distinct problem and began seeking solutions through a tangible legal fee reduction process, a process which continues to be developed with snowballing profundity.
While the companies had to react to economic downturns, they made debilitating mistakes threatening their own survival, including the dismissal of some of their most experienced claims technicians through xe2x80x9cright sizingxe2x80x9d maneuvers. With the legal profession making no positive moves to help, expenses soared and insurance companies became increasingly dissatisfied with the fact that so much money was being spent to defend cases with only a handful of them actually being resolved by trials. If such a high ratio of cases settled, why was so much money necessary for preparing the associated defenses? While this difficult situation was no doubt caused equally by the companies and their outside counsel, it was the insurance industry that made the most drastic moves to stop it. Now, over a decade later, the situation does not seem to have changed all that much on the bottom line.
During the past fifteen years, the most popular insurance buzzwords have been xe2x80x9ccost containmentxe2x80x9d, xe2x80x9clitigation managementxe2x80x9d, xe2x80x9cre-engineeringxe2x80x9d and more recently, xe2x80x9clegal auditsxe2x80x9d. These are all management terms which continue to be popularly tossed around the insurance industry. In fact, their usage is so widespread it is easy to discern that, to a certain degree, many casualty companies are consubstantial in their thought processes. This trendiness makes them somewhat more predictable than their outside counsel, a fact which could benefit an alert law firm seeking to increase its business. In attempting to treat the problem of uncontrolled legal expenses, the competitiveness of insurance companies has shown through very conspicuously. Now, companies seem to be in a race to see which can viably market itself as the best at containing costs, the best at xe2x80x9cmanagingxe2x80x9d litigation, the most proficient at re-engineering itself to maximum levels of efficiency and the most aggressive at reducing costs. Only in the past few years has the legal industry finally begun to show off its marketing savvy, which centers around their clients"" expense problems.
Approximately thirty years ago, outside defense lawyers began charging for their services by the hour. Approximately twenty-five years ago, some parties insisted on it. Finally, approximately twenty years ago, hourly billing had essentially gained universal acceptance by the insurance industry as the proper billing method for defense firms. The motivation behind the movement from value to hourly billing methods is immaterial because when the transformation was complete, no one was overly dissatisfied. Lawyers saw hourly billing as a way to show off how much work really went into defending a lawsuit, while the insurance industry saw it as a way to make lawyers accountable and force them into reasonable billing habits.
Although neither industry completely understood the other, by the time hourly billing was firmly entrenched, the insurance industry""s satisfaction with it foreshadowed future events and the present predicament. Insurance companies"" penchant for regulation is a characteristic that has been consistently demonstrated for about three hundred years and was first developed through the underwriting process. Although hourly billing is relatively very young, it has predictably become a highly problematic form of regulation, because the insurance industry is so prone to managing itself by the control of processes. During the insurance companies"" financial difficulties, more emphasis began to be placed on hourly billing. This caused many defense firms to trip over their own monetary success. Had the firms been able to properly anticipate how the insurance industry would react to the declining profits of the nineteen-eighties, many of the current animosities over hourly billing may have been avoided. Hourly billing, being highly process-oriented and already in place, was an ideal mechanism for the insurance industry to use as it began its aggressive attack on reducing costs through minimizing legal fees.
As the insurance industry remains in hot pursuit of minimizing its legal expenses, it has initiated a multi-faceted strategy which, among numerous other moves, includes increasing its staff counsel operations and constantly challenging the amount of time billed by outside firms. There has been some innovation toward, and much discussion about, returning to some form of value billing. However, to many claims professionals, billing by the hour is still the best alternative because it fits in so nicely to a process-oriented management structure and has a measure of tangibility which characteristically appeals strongly to the insurance business. To a large extent, insurance companies measure results in terms of dollars spent and dollars earned. Such measurements involve simple calculations. It is much more difficult to measure the essence of good claims or legal workxe2x80x94how much was spent when compared to how much might have been spent.
Currently, the true disagreement between insurance companies and defense counsel is not about law firms"" abilities and performance or a company""s routine claims philosophies. It is about value. Firms often feel their value equates to their self-perceived quality, which can be found in their ability to dispose of cases either directly or indirectly through trial experience and reputation. On the other hand, because insurance companies grant all authorities and believe that any firm can reasonably settle most cases, they do not see these qualities as creating any particular value, except one which is secondary to measured costs. There can be a glaring difference between quality and cost. For a true value to exist, there needs to be a recognizable balance between the two. The problem is in blending them to create that balance.
Characteristically, hourly billing has tremendous accounting and communication benefits. However, if a law firm structures its practice around billing formats, or perhaps includes billed time production in its performance criteria, an insurance client can become very confused when trying to figure out where or how quality and cost are tethered. Conversely, too much reliance by an insurance company on hourly billing as a post-activity monitor can prevent, rather than promote, any balance between quality and cost. In either instance, values of legal services are not detectable, because the respective focuses are all wrong.
It is the intangibility of savings that has caused insurance professionals to shy away from seriously considering billing alternatives which rely on the assessment of probable values. While claims professionals make such evaluations relating to indemnity on virtually every case they handle, there is continued reluctance to apply the same principles to legal expenses, partly because they are not required to and partly because they have not yet acquired a comfort level with what constitutes a good deal in the expense area. In the meantime, while current billing methods continue to offer the tangibility that companies like, the aggressiveness of the industry mounts constantly, mostly through increasing and refining procedures designed to control the billable hour. Most insurance companies have produced sophisticated billing guidelines which become continuously more complex and restrictive. In many respects, xe2x80x9clitigation managementxe2x80x9d has become retrospective, a fact supported by the increased use of legal expense audits which have now become commonplace.
With the availability of cost containment programs including audits, some insurance companies insist on defining legal expense savings as the difference between how much was billed and how much was paid on a given case. As soft as these savings may be, they are still measurable, and as long as some form of savings are possible through current methods, an insurance company is not likely to abandon or alter its processes. The relationship between the insurance and legal industries has already deteriorated to an alarming degree and will continue to suffer because of the numerous (and supposed) cost saving tactics, many of them artificially intelligent, being used by insurance companies. Continued mistrust of one another, which happens to be a major by-product of the billable hour, will continue to increase steadily until and unless better understandings are reached. Obviously, this can only occur through genuine communication and a diminishment of gamesmanship.
Is hourly billing working? The way it stands now, the legal and insurance industries feel cheated by one another and cannot seem to stop posturing long enough to find solutions which serve mutual benefits. So, candidly, hourly billing is probably not working at all, at least not to an extent that promotes the necessary recognition of value. And while insurance companies continue to fool themselves into believing calculated procedures always achieve their intended results, the arrogance of their xe2x80x9cget toughxe2x80x9d policies seems to blind them from a critical fact: if a firm, independent from technical accomplishment, is motivated to churn out unjustified profits, or if it has a propensity to overbill, all the procedures and billing rules conceivable will not contain their costs. For such a firm, it does not take long to figure out where their activities are program detectable, making a redirection toward continued over-billing simple. Relatively, not many such firms exist, certainly not to the degree some officious insurance professionals and members of the press would have everyone believe. Unfortunately, however, a few do exist. And as long as they do, insurance companies find it easy to suspect, but difficult to know, exactly who they are, particularly because of the universal effects and perceptions created by hourly billing and associated audits.
The essence of the relationship formed by an insured, selected outside counsel and an insurance carrier is dynamic and not easily subject to definition. Unfortunately, this relationship may not produce any type of automatic alliance because, at best, it is forced to exist by an insurance contract. For years, legal ethics committees have debated the subject. Although each member of the firm/company relationship has some type of duty or responsibility to one another, this partnership, which is created by the filing of a lawsuit, is rife with potential conflicts, the most significant of which is control. From a practical sense, the question becomes xe2x80x9ccontrol of whatxe2x80x9d?
From the insurer""s point of view, an insured pays a premium to an insurance carrier. When a lawsuit is filed that prays for monetary damages, the insurance carrier is pays lawyers to defend the suit, pays for other expenses and pays for settlements and verdicts. The defense firm collects a fee. Money could be considered to be the bottom line. To make matters worse, cynicism gives insurance companies tunnel vision of the fact that defense lawyers are the only participants in a lawsuit who are virtually guaranteed of not losing money and are instead assured of making a profit. If not for the money it had to spend for both indemnity and legal expense, the insurance carriers surely would be indifferent to the activities in which lawyers become engaged. Although attorneys are expected to conduct themselves in a professional manner, while insurance companies act in good faith and insureds cooperate, were it not for the money at risk, any misbehavior could be easily overlooked. The struggle over control really is all about money.
Defense guidelines are categorically necessary to claims professionals for communication and control, particularly in view of a high volume of suits which are diverse in size and type. Again, considering the common characteristics of insurance companies, cost containment and litigation management start with rules and procedures designed to help accomplish, or at least monitor progress toward, a goal. Having been forced to operate under guidelines, an attorney is placed in a most difficult position when the goals of the insured and insurance company are different. For example, in a given lawsuit, the goal of a manufacturer could be to preserve the integrity of a product no matter what the legal cost, while the insurance company has a goal to resolve the case for the least amount of money. This type of problem, and any number of other scenarios, is commonplace in the tripartite relationship. When the goals of the insured and insurer are the same, following guidelines is more palatable for the attorney, albeit even then there potentially exists a situation in which the attorney agrees with neither.
That guidelines are long-term, if not permanent, is probable. Providing the guidelines is the insurance industry""s attempt to underwrite a result, which realistically is impossible given the innate divergency of litigation. More often than not all parties to the tripartite relationship legitimately want to live up to their prescribed duties, but defense guidelines may serve as a stumbling block, a fact which does not and should not diminish their necessity or effectiveness. There is no question that outside counsel guidelines have ethical and malpractice aspects. By no means does this render them worthless.
As written, outside counsel guidelines were never intended to have ethical or malpractice aspects or to hamstring attorneys. Most guidelines do or should include some type of disclaimer that defines them as such. Absent a complete understanding of the realities associated with forcing compliance on the one hand or undertaking to comply on the other, the results hoped for will never be realized and polarization on the issue will intensify. To work through the many inherent problems caused by outside counsel guidelines, defense attorneys must recognize and insurance companies must admit the presuppositions which are made at the time they are established.
The gist of outside counsel guidelines is clear and reasonable. It is their application that tends to muddle things. When constructing guidelines, insurance companies remain true to their character by venturing to create a result through a detailed process, but this type of micromanagement cannot be totally successful unless circumstances are exactly consistent with perceptions. It is not the legitimacy of outside counsel guidelines that is being tested here, rather this is a commentary on what does or can happen if conditions are less than ideal. When presuppositions are inaccurate, an attorney who rotely follows insurance company guidelines has an enormously increased chance of committing malpractice, violating a code of ethics or breaching a professional responsibility.
When creating outside counsel guidelines, insurance companies presuppose that:
1. the authors of the guidelines are qualified to produce them;
2. the guidelines do not stifle creative thinking;
3. all attorneys have a propensity to perform unnecessary work;
4. the company will fulfill its own responsibilities described or inferred by the guidelines;
5. the guidelines will produce a savings by lowering legal expenses or producing quicker resolutions;
6. the work habits, personalities, capabilities and structure of all attorneys and firms are the same; and
7. attorneys do not recognize a fiduciary duty to the company.
Insurance companies may presuppose that the authors of the guidelines are qualified to produce them. Insurance companies are big on committees and thinking procedural things through with painful and cautious slowness. Only those qualified to write guidelines, at least in the opinion of the company, will be called upon to establish them. Therefore, along with what is legally acceptable on the surface, it is presupposed that guidelines are predicated on apropos experiences, both good and bad, of their authors. If unqualified input is allowed to infiltrate, which easily happens in a committee process, problems are spontaneous because the guidelines have rudimentary flaws.
Insurance companies may presuppose that the guidelines do not stifle creative thinking. Insurance companies expect their pure technicians, commonly the type which would handle litigation, to rely upon experience and know how while tending to a lawsuit and dealing with defense attorneys. However, the companies also typically are highly structured with individual performance monitors deeply emplaced. Too often, substance becomes secondary to form. If a company is inclined to base merit increases and performance appraisals largely on how well an employee complied with procedures, the natural tendency of even the most accomplished technicians will be to follow procedure first; do the right thing second. This is how general guidelines become rigid and axiomatic.
Insurance companies may presuppose that all attorneys have a propensity to perform unnecessary work. Guidelines typically anticipate that lawyers automatically overkill issues and overuse the legal process, which is not necessarily true. The difference in the background of lawyers and claims professionals may stand out the most in this area, however. Lawyers are trained to find and consider every possible detail, whereas claims professionals are trained to be thorough, but pragmatic. What is viewed as necessary, unnecessary or reasonable is different depending on who is making the judgment and in what context.
Insurance companies may presuppose that the company will fulfill its own responsibilities described or inferred by the guidelines. For an attorney, this surely must be the most frustrating of all presuppositions. It also is the largest contributor to mixed messages and confusion. True, guidelines are somewhat different, but to varying degrees all of them contain a certain amount of restrictive language such as, xe2x80x9c . . . without first obtaining authority to do so,xe2x80x9d xe2x80x9cWe won""t pay for . . . ,xe2x80x9d and xe2x80x9c . . . are not permitted to . . . xe2x80x9d If a company requires an attorney to obtain permission before proceeding with something he or she plans to do, it must ensure that a staff is available to discuss and provide authority. Frequently, over long periods of time, attorneys are forced to contend with unanswered letters and phone calls requesting authority in accordance with guidelines. The assumption that the claims staff is living up to its explicit or implied promise to provide or deny authority within a reasonable time is simply, in some cases, inaccurate. In today""s environment, this is where the insurance industry is tripping the most over its own re-engineered xe2x80x9cefficiencies.xe2x80x9d A company failing to meet its own requirements in the overall control process places an attorney who wants to properly serve the insured and insurance company in jeopardy.
Insurance companies may presuppose that the guidelines will produce a savings by lowering legal expenses or producing quicker resolutions. The design of guidelines is apparent. Reporting requirements seek to keep claims technicians informed, thereby affording them an opportunity to evaluate cases and reserves on an ongoing basis. Restrictions on activity attempt to control costs by lowering expenses and/or giving the insurance company an opportunity to dispose of a case as soon as possible. Speed of resolution serves the two-fold purpose of stopping expense and producing lower settlements. Remembering that""the nature of insurance companies is to blindly follow their own procedures, many guidelines actually accomplish a reverse result in a broad sense. In effect, on a given case, a lawyer may be procedurally required to undertake cost-incurring activities which would have been avoided but for the guidelines themselves. One of numerous examples serves to illustrate this problem: many companies take the position that they simply will not pay for intraoffice conferences, when in fact a conference may have been the very thing which would have produced a lower amount of time or quicker, better result.
Insurance companies may presuppose that the work habits, personalities, capabilities and structure of all attorneys and firms are the same. The only chance for a guideline to serve a meaningful purpose is for it to uniformly apply. In analyzing any set of guidelines, the presupposition""that all attorneys in all firms will be affected similarly becomes clear. This likely is an inaccurate assumption, because the structure and organization of law firms are very diverse and no two lawyers function exactly the same. The point is, a requirement will not necessarily be carried out with equivalence by different attorneys or firms. For example, instructing attorneys to provide a thirty-day status report will bring a one-line, xe2x80x9cnothing to reportxe2x80x9d letter from one attorney and a twelve-page dissertation from another on virtually the same case.
Insurance companies may presuppose that attorneys do not recognize a fiduciary duty to the company. There is a perception that attorneys do not recognize any obligation to help the insurance company control costs or save money. As with the other presuppositions, this is not absolutely true, especially now that attorneys are more fixed on cost sensitivities and need to market themselves as such. As a whole, defense attorneys may be blamed for this assumption in both past and present habits and developments. Historically, there was a rather widespread attitude which not only approached high-handedness, but also abruptly dismissed potential learning discussions about expense management. Attorneys simply won out in disagreements by reiterating that the insured, not the insurance company, was their client. In today""s market, sophisticated underwriting alternatives, such as retro-rated, large deductible and retention policies have reinforced direct client-attorney allegiances by shifting bottom line financial results more to the insured. In the meantime, claims technicians have not been relieved of their own responsibilities to control costs. While most outside defense attorneys work hard at fulfilling their fiduciary duties to both their client and the companies, it is easy to see how the issue has worn thin on the insurance industry over time.
Outside counsel guidelines have ethical and malpractice aspects, but they should not be eliminated. There is a legitimacy to them which cannot be overlooked. The years of insurance companies paying high and annually escalating legal expenses, while experiencing flat or worsening indemnity results, have taken their toll with tremendous impact. If the insurance and legal industries can simply admit they contributed equally to the problem, ethical and malpractice aspects of outside counsel guidelines can be overcome.
The creation, implementation and enforcement of litigation and billing guidelines were chronological predecessors to the more technologically advanced era in which companies and attorneys alike now exist. This advancement has been rapid and, with continuing improvements in computer capabilities, becomes more complex daily.
Virtually all insurance company audit processes had their beginnings in some form of litigation guidelines. When the mass movement toward published guidelines first began, the companies were still trying to manage cases individuallyxe2x80x94the way it had been before and should be today. But principles learned and billing abuses uncovered during that phase of transition suggested that certain cost categorizations pertaining to a universe of lawsuits could be harnessed and controlled. Insofar as the companies were concerned, these categorizations primarily split measurements of litigation success into two definable areasxe2x80x94quality of xe2x80x9cdefensexe2x80x9d and billingxe2x80x94both from cost perspectives on the bottom line. While continuing to be directly related, even derivative of one another, these two areas began to be scrutinized separately by insurance companies. To address both issues with equal levels of control, the companies started producing guidelines in two segments, one part for the handling of a lawsuit, the other to directly address billing parameters and tolerances.
The first company specializing in legal bill audits came on the scene in 1987 with its first competitor being formed shortly thereafter. Their insights and services were timely for the insurance industry, which essentially thought it had discovered a new science but did not know how to develop it or even what to do with it. Insisting upon reducing high legal fees that guidelines were supposed to control, but did not, the insurance companies found the audit companies"" methods to be irresistibly appealing. They thought their plateau of infallibility on legal billing arguments had finally been reached. Since the first two emerged eleven years ago many, possibly hundreds, of similar companies have cropped up around the country, and the legal bill auditing industry is doing well.
While the link between guidelines and audits is irrefutable and irrevocable, through a combination of diminished technical talent, using xe2x80x9ccost managementxe2x80x9d as a competitive tool, being endeared to processes and having audit services readily available, the insurance industry""s most rigorous efforts in litigation are now primarily aimed at legal costs. Essentially all insurance companies have adopted some type of legal audit procedures. Some attempt to be more comprehensive and fall more in line with traditional file supervision and case evaluation practices than others. It is also safe to say that all companies have reached and routinely rely upon higher levels of computerization and that most have incorporated computers into their audit processes in some fashion, either in-house or through one of the auditing companies.
One of the pitfalls of placing so much emphasis on costs as a xe2x80x9cstand alonexe2x80x9d issue is that some litigation supervisors at an insurance company level may develop tunnel vision, which in turn would have a direct impact on technical decisions. That is, priorities for granting authorities to firms for activities necessary to an insured""s defense could get turned upside down by considering the cost first and strategic benefits second. Conversely and maybe worse, an overworked, lazy or ineffective litigation handler may find too much comfort in knowing that an audit company will review the legal fees and as a result not sufficiently consider legal costs when making decisions. Under the first scenario, firms are forced to fight with an insurer to perform well for their clients and be assured payment for their services. Under the latter, firms proceed with recommended activities or to carry out instructions only to find out, after the fact, that the company wants to pay a fraction of resulting fees. It is easy to see how confused a firm can be, even when they have advanced notice of billing restrictions and boundaries.
Now a question of ethics arises about audits. Insurance companies take the unwavering position that audits are not unethical in any way. But lawyers have been strengthened over a couple of recent cases that suggest there may be an ethics issue tied to audits. Although the case facts are too different from current issues for a precedent to be declared, on the strength of these cases, some attorneys are contending that providing billing details to outside auditors is in fact a disclosure that may constitute a waiver and become discoverable. There do not seem to be clear and fast cases on pointxe2x80x94with insurance companies auditing legal bills or having them audited by a third party. With sensitivities heightened, the issue has ripened to heated argument at stages. The conflict continues, and even more polarization than that which occurred on guideline issues may be expected.
While the topics of privilege and confidentiality will no doubt lead the charge for attorneys as they try to convince courts that audits are unethical, they should take care to not miss the point again. Unethical practices simply do not occur solely as a result of a structure or interpretation. Lawyers know it and so does everyone else. Realistically, audits are no more inherently unethical than a defense attorney talking to a plaintiffs attorney. And as the debate expands, insurance companies now see defense attorneys as generally hiding behind ethical issues to engage in the unethical practice of overbilling. Frankly, the energies being put into the prevention of audits by some firms alone make them suspect.
It is estimated that the insurance industry is spending over $25 billion annually on legal services. In fairness, insurance companies surely have a right to scrutinize the work and billing of their defense counsel. Some would say they have gone too far with their tactics. The most popular and expedient form of audits being utilized today is the computerized bill review process. Unfortunately, the relatively rapid development and success of these processes has resulted in a level of computer xe2x80x9csophistication,xe2x80x9d which is often over-applied, artificially intelligent and sometimes downright insulting to attorneys.
Frankness is the key to the type of communication that is now necessary before the problem gets any worse. Attorneys need to accept that billing abuses in their profession are real and commonplace even though they, themselves, are free of guilt and in no way the culprit here. The legal profession tends to be a stubborn one and has continued to make statements such as, xe2x80x9cexpensive but good.xe2x80x9d Insurance companies, on the other hand, need to be cognizant of the facts that they may not be delivering on guideline promises, a widespread procedure may not properly treat a given situation, and they may be making the standard for fair billing too difficult for the firms to achieve.
Since guidelines and audits are here to stay, something positive may as well come from them beyond companies riding herd over their chosen counsel. Working together should be the primary challenge to attorneys and insurance companies who genuinely want to smooth out relationships. But as alluring and pleasant as this seems, true accord will not be reached until harsher alternative challenges are considered, with insurance companies abandoning untrustworthy counsel and counsel abandoning an oppressive or mischievous insurance carrier client. Hopefully, the most commonly accepted solution is to work together. But if this simply is not a viable possibility, counsel and companies alike should have the wherewithal to pursue alternatives. In any case, professional codes cannot allow squabbles or ill feelings to supplant absolute responsibilities. Above all, cooperative lawyers and claims professionals can ensure that neither outside counsel guidelines nor audits are the cause of ill feelings (unless a dispute created by them results in a law firm taking measures to disguise billings).
It may well be that insurance companies will need to soften their bill reduction tactics before anything can be worked out. Law firms may wind up developing a litigation strategy to limit the control currently imposed by guidelines and audits. One solution, set forth herein, is to provide concurrent monitoring of the legal services/litigation process. Computer networks,such as the Internet, can provide the medium by which such a shared system could be established, developed and maintained.
The present invention provides an Internet method and system for managing litigation from start to finish while resulting in comprehensive bills to clients and insurance companies who are responsible for paying law firms for their legal services. The present invention equally supports defense firms, their clients and insurance carriers. The method incorporates lawsuit planning, front end cost estimating, individual work budgeting, case staffing, case progress, time and fee accountability, guideline compliance, prioritization of work, maximized spontaneous communication on specific work items, isolation of fees, isolation of expenses and billing in a total package for all managers of litigation. The method and system account for time and fees according to work products and eliminate disconnected chronologies of activity and time itemizations in bills.
A work product in a lawsuit being defended by a law firm is any individual legal instrument, legal maneuver or legal procedure performed, produced or completed by the firm for which a fee can be charged. Such work products form a core element of the present invention. Legal fees result from a series or combination of activities and work components that support or make up the work product. The present method specifically avoids task number coding and is based on the segmentation, identification and time management of the individual work products which combine to make up a whole legal case. The method provides pre-defined utilization lists of probable work products, their descriptions and activity descriptions, but is also flexible so that written descriptions can be used in lieu of listed items. The system prohibits forced distribution of work products or activity descriptions so that data and communicative characteristics are accurate and maximized.
The method allows and encourages narrative explanation for each work product established on a case by containing data base text fields for specific work descriptions and specific references. The system is utilized by the firms and the individuals to whom they are reporting for spontaneous and immediate electronic communication through the Internet. Work products are established, budgeted for and managed during case development. The method eliminates the need for after-the-fact auditing of legal bills. The method allows for carrier guidelines to be directly incorporated into the system, via programmed alerts, to maximize guideline compliance. The system enables interim payments to be made by producing detailed legal bills for completed work products that have been pre-communicated to clients/carriers. The system allows all users to view and measure incurred fees and expenses while they are accumulating and before actual bills are submitted for payment.
The method contemporaneously informs law firm managers and the bill payers about case legal fee exposures and accruals allowing for progressive adjustments and communication on specific items, by providing automatic and continuous summaries that calculate and report time, fees and expenses for each case, each product, and each timekeeper. Bills are electronically submitted (as by e-mail) or may be submitted by alternate means such as regular mail or via FAX. The system provides budget alerts to enhance communication and management of each work product.
The system also produces comprehensive cost and efficiency management reports for both the law firms and the insurance carriers that pay their bills. The reports cover a wide variety of critical factors and cost and efficiency elements including, but not limited to, categorized work products, individual timekeepers, individual firms, groups of cases, groups of firms, averages for fees, expenses and total costs. The management and billing method is supported and operated by a software program for individual case and daily entry, summary and communication over the Internet, and by a software program for management information reports.
The method and system software can be utilized by any subscriber to any Internet service provider (ISP). Users primarily will be law firms that specialize in defending lawsuits and their client representatives or insurance carriers who are responsible for payment of legal fees. Communication, case reporting and fee bill development is performed online. With customization, the invention may also be used by any other service person or organization who charges for services on an hourly basis. Security, such as encryption or secure sockets layer (SSL) can provide the reasonable expectation of privacy demanded by private financial transactions.
It is an object of the present invention to provide a sharable billing and review system.
It is an object of the present invention to provide such a sharable system that is available as widely as possible.
It is another object of the present invention to provide an Internet-based billing and review system for litigation and/or related services.
It is yet another object of the present invention to provide contemporaneous monitoring of the litigation progress via the Internet.
It is yet another object of the present invention to provide clients and/or insurance carriers means by which legal billing of budgets may be established and monitored in light of on-going billing.